Pot smokers around the country are likely to recall, perhaps even verbatim, the Justice Department’s 2009 edict promising that federal drug enforcement resources would not be used to go after and prosecute medical marijuana interests, if those interests were acting within state law which authorized medical marijuana operations. Never the less, the recent Justice Department assaults on medical marijuana dispensaries in States like Nevada, California Montana, and Colorado are spinning a very different image of the Obama Administration’s position on medical marijuana.
Perhaps the answer is that this is 2011 not 2009; and it’s the IRS, not the DEA going after dispensaries. Many tax lawyers and pot insiders tuned into the issues affecting the cannabis industry believe the latest IRS focus is on deductions being claimed for business expenses incurred by dispensaries that are illegal under federal law. If those deductions are disallowed, dispensaries could find themselves owing big!
Between back taxes, interest and penalties the price for compliance could end-up being higher than some of the dispensaries’ best customers. If dispensary owners chose not to file a federal tax return and/or have unfiled returns for multiple years the amount of back taxes, interest and penalties owing could be even larger. Dispensaries who relied on questionable advice and attempted to hold themselves out as 501(c)(3) charities are also likely to have a rude awakening, if they haven’t already.
Medical marijuana advocates argue that in-fighting between divergent interests in the medical-marijuana community are causing the movement to be side-tracked from achieving its goals and causing its lobbyists to lose credibility with lawmakers. Tax lawyers and others believe this latest salvo of audits by the IRS, along with twenty six (26) criminal search warrants in Montana, send a clear signal the Obama Administration is turning up the heat on pot dispensaries and if they haven’t gotten good legal advice they could find their operations going up in smoke.
As this is an emerging area of the law, dispensary owners and others in the cannabis industry needing answers should consider consulting a tax attorney competent in this unique area. When looking for the right tax lawyer, do your homework. Ask direct questions, and if you don’t get direct answers perhaps you should consider going elsewhere.
If you already owe back taxes, or have unfiled returns, a competent tax attorney can help you not only fix your current tax problems, but also give you good tax advice for conducting your business going forward to avoid similar problems in the future. In the immortal words of the Watch-Command Sergeant on the old television series Hill Street Blues, “let’s be careful out there.”
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